Government meddling hurts first time buyers

Peter Simpson is the former president and CEO of the Greater Vancouver Home Builders Association and he’s got a column in the Vancouver Sun that strings together some numbers and anecdotes and then blames the federal government for hurting affordability.

Since this column is about first-time homebuyers, I must comment on federal Finance Minister Jim Flaherty’s changes to the rules governing federally insured residential mortgages, including a reduction in the maximum amortization period from 30 to 25 years.

It is not clear that a tightening of mortgage rules helped Canadians to manage their debt. What is clear is that the shorter amortization period has reduced housing demand by eroding affordability.

Now of course this ‘reduction’ in the maximum amortization period is actually just a reset to a historical norm, not to mention that it only applies to government insured loans.

Mr. Simpson refers to an older generation with homes that are paid off, but I can guarantee you that those homes were not bought on a 30 year amortization, so did longer morts help or hurt affordability? Is it possible that pushing more money into the housing market simply helped to drive up prices and worsen affordability?

It may be that Mr. Simpson is not primarily concerned with the well being of the first time buyer, but is instead concerned with a reduction of customers for his industry.

His conclusion is especially telling:

Finally, Vancouver-area pundits predict there is a sales shift to moderately priced homes, and a buyers’ market will continue until mid-2013. There is no assurance interest rates will remain low through 2013. The bottom line is it seems to be a good time to consider buying a new home.

Read the full thing over at the Vancouver Sun.

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Con-Rad
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Con-Rad

Some people are very worried about 2013. If you say something enough people will start to believe it. This is strategic and will not be the last article you will read. Are you scared? I would be. These guys will fight like a cornered animal to get their way out of this one. Greed is a powerful drug.

Vote that truth down, bears.

rp1
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rp1

@Con-Rad: “Some people are very worried about 2013.”

Why?

“If you say something enough people will start to believe it.”

Why would that affect a market, aside from a temporary blip? For houses especially. The investment value of houses is clear. You buy a house to not pay rent.

“Are you scared? I would be.”

One should never make investment decisions based on fear. It usually turns out worse than greed.

“These guys will fight like a cornered animal to get their way out of this one.”

Who? There is nothing to get out of.

“Greed is a powerful drug.”

Certainly, and it becomes more powerful if realized.

Ralph Cramdown
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Ralph Cramdown

Hidden among the mouldy folds of an otherwise dubious article are two iffy propositions:

First, the assumption that house prices are the independent variable (“What is clear is that the shorter amortization period has reduced housing demand by eroding affordability.”) Um, nope. Everybody who wanted a house before likely still wants one. What about the people who wanted to sell before? Do they still want to sell? OK then.

Second, that Flaherty is aiming for a permanently high plateau/soft landing/what-have-you (“if Flaherty and his government really want stability in housing markets…”) Have any of F’s actions signalled that he wants stability? Have he and Carney said or implied that they would be comfortable with stable prices? OK then.

patriotz
Member
@Ralph Cramdown: “Have he and Carney said or implied that they would be comfortable with stable prices?” Sounds like it: Pressures in the Toronto and Vancouver housing markets are moderating, Canadian Finance Minister Jim Flaherty said on Thursday, with neither a bubble nor a hard landing in sight for the country’s property market. “I don’t think there is a bubble, or a danger of a bubble in Toronto and Vancouver. I’m actually comfortable with the fact that we’ve seen some moderation in pressures in that market, both of those markets and across the country,” Flaherty told reporters. http://ca.reuters.com/article/businessNews/idCABRE8931HC20121004 I don’t think Flaherty really wants to bring down nominal RE prices at all. He just wants to cap consumer debt because Carney and (I am quite sure) Wall Street have been telling him that the country faces a catastrophe if he… Read more »
Anonymous
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Anonymous

Time magazine has an article about the Canadian real estate bubble and the comments from Canadians below the article are mocking the very notion that we could be in a bubble. VREAA summarizes:

“The majority of comments below this article, as of 2 Dec 2012 p.m., are noteworthy for indignant hubris. When one sees terms like “laughable” and “little doubt” being used to describe positions, one should be particularly vigilant. Also interesting that the author and the publication are accused of sensationalism and “trying to generate a tempest”:”

http://vreaa.wordpress.com/2012/12/02/time-magazine-asks-bearish-questions-about-our-re-market-canadian-readers-indignant/#comments

Ralph Cramdown
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Ralph Cramdown

@patriotz: But as of the date of the Flaherty quote, prices in Vancouver had been declining for some time, with downtown Toronto condo inventories up markedly, and he would have known that. “Pressures are moderating” my ass. Sure, given his druthers, Flaherty would love a soft landing. But given a choice between reining in credit (knowing that prices would fall) and letting ‘er ride, you can see what he’s done. Opinions differ on the man’s intelligence, but I’d bet he’s been advised that it isn’t going to be pretty and is under no illusions.

Anonymous
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Anonymous
Gotta love this comment on the Time article by K. Navaratnam: ” The very notion of Canada having a real-estate collapse similar to the american one is highly laughable. It wasn’t merely in vogue to list Canada as a stable economy in the immediate aftermath of the 2008 financial meltdown… four years later, it remains the best performing economy in the west, with the Canadian dollar now being considered by the IMF for reserve currency status. The Canadian financial structure is far more risk-averse than its western counterparts and will remain so. While it is true that there are no doubt a few small bubbles in such cities as Toronto and Vancouver, they are concentrated in a few small neighbourhoods and mainly consist of condo properties. If there is any bubble in Canada it is the condo markets of downtown… Read more »
Anonymous
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Anonymous
Commenters on the Time article are also under the delusion that buyers in Canada are required to have a min. 20% down payment and that Mark Carney was promoted as Governor of Bank of England because of his track record at managing Canada’s strong and healthy economy. The denial in those comments is shocking. Most bearish news story in Canadian media have a mixture of comments, including many bearish comments that acknowledge the market here is in trouble. It seems that the Time article has rubbed some Canadians the wrong way. I think Canadians get their backs up when they are being called out by Americans. These Canadians are essentially insisting that Canadians are superior and smarter than Americans, Spanish, Irish, etc. The irrational hubris of Canadians makes me embarrassed to be Canadian. Whatever happened to the days when Canadians… Read more »
news junky
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news junky
From CBC: “A B.C. woman stands to lose her home to her lawyer, who is moving to foreclose on her to pay his six-figure bill…Fotsch got into the predicament after being sued by her ex-husband, even though she won the case and the court ordered him to pay her costs… Fotsch, 54, lives near Pemberton with her disabled son and earns a modest income. Her only asset is her house and the 12 hectares of land it sits on… A decade ago, her common law ex-husband Leigh Wilson went after Fotsch, trying to get a piece of her property after their breakup. The case took nine years to resolve, which was years longer than her lawyer had predicted, she said. “There was a three-week trial – three weeks! For my little place in the country. I mean, it just seems… Read more »
elvince
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elvince

Has anyone ever heard a home builder or a realtor say that now is not a good time to buy? Me, never.

Anonymous
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Anonymous

@news junky:
What do you call a bus full of lawyers driving off a cliff?…
A good start.

bullwhip29
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bullwhip29
Honestly, I am getting tired of these types of articles already. Those of you that feel the gov’t is giving you a raw deal, give your heads a shake. If that purchase of a so called “dream” home is suddenly not doable under the new guidelines, you shouldn’t have been thinking about it in the first place. Wake the f&*$ up everyone! What has transpired to date should not have come as a surprise. IMHO, they could have done a whole lot more, but didn’t, so consider yourselves lucky. FWIW, I see rates staying stuck at rock bottom levels for the foreseeable future (contrary to what all the so called experts are warning everyone about) due to the worsening economic situation here and elsewhere. Those of you that feel inclined to plant your feet firmly back on Earth should use… Read more »
Population Control by Retroactive Darwinism
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Population Control by Retroactive Darwinism

@news junky: “I’ve done nothing wrong. What have I done wrong?”

Priceless! Lady, if you don’t know, you definitely got what you deserve. Your enormous sense of entitlement finally fell out of the sky and squashed you like a bug!

Filed under the same category is Peter Simpson’s shameless Vancouver Sun plea for first time buyers to have the government give loans to idiots that the bank wouldn’t otherwise lend to. Where should these first time buyers live you may ask? Send them back to their parents’ basement or whatever country they came from. Call it Retroactive Darwinism. If you can’t afford to support your useless untalented spawn from cradle to grave, then use birth control!

bullwhip29
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bullwhip29

@ rp1 December 3rd, 2012 at 5:12 am

“Why would that affect a market, aside from a temporary blip? For houses especially. The investment value of houses is clear. You buy a house to not pay rent.”

On planet Earth, markets don’t work this way. For the vast majority of homeowners, houses wind up being terrible “investments” especially after one factors in the cost of servicing the mortgage for a home that was likely out of their price range in the first place. The fact that you even mentioned the “investment value” of houses says a lot too.

News Junky
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News Junky
Just to be clear, I do feel sympathy for the lady getting foreclosed on in the CBC story. Hers is not a story of someone who binged on cheap credit and overpriced housing. It seems to me she was taken advantage of by her lawyer who is charging her 18% interest (is that even legal?) and who allowed the case to drag on for 9 years. But she does sound like someone who has poor financial management skills. The article says the bank wouldn’t lend her the money for the lawyer bill because she already has “another mortgage”. I doubt she owns additional real estate, so that is probably a second mortgage on her home. The article says the lawyer took out a mortgage on her home too, which doesn’t make sense. She sounds like someone who is in debt… Read more »
Exports Down. What to do?
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Exports Down. What to do?

@News Junky: Difference? Unscrupulous Lawyer or RE Marketing Cartel.

Pick your peril. It is always buyer beware. Fools will be eliminated.

Recklessly engaging a divorce lawyer at all costs is no different than buying the biggest possible home. Both types of people are trying to win at all costs because they think they are special. The divorcee could have settled or at least shopped her case around and the RE kiter could have made themselves aware of the risk they were taking with borrowed money. I don’t see a difference.

N
Guest
N

@News Junky:

“Hers is not a story of someone who binged on cheap credit and overpriced housing.”

Right. So it doesn’t really have anything to do with Vancouver real estate.

Anonymous
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Anonymous

The Conservatives must be getting worried re: all the headlines about our imminent crash. I wonder if they will blink and roll back the mortgage changes?

Many Franks
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Active Member
Many Franks

The Bank of Canada counter-attacked the WSJ article comparing Canadian debt to American debt, and it looks like they’ve just published the methodology.

Long story short: to compare with the States, Canadian disposable income gets revised upwards by a fair chunk (big yay!) while Canadian debt also gets revised upwards by a small amount (tiny boo/hiss).

The earlier report mentioned the social safety net as a major difference, but the follow-up analysis seems to have omitted that difference. (Hard to quantify?)

Hope everyone feels extra-rich today.

It should be noted that this is considered an interim solution and this note does not argue that this is a better or more representative measure.

Sounds to me like a nice way of saying “this is a hack job to bolster our questionable international credibility and shouldn’t be used for much.”

rp1
Guest
rp1

#14 @bullwhip29: What you’re saying simply isn’t true. Houses normally are a good investment if the value is stable and leverage is high. Good investments become bad investments when people overpay. By “clear” I mean the value of a house is easy to compute. The average person should be able to figure it out.

GVREB
Member
GVREB
Firm trend of lower prices in Greater Vancouver as demographic changes bring motivated sellers to market FOR IMMEDIATE RELEASE ON VCI VANCOUVER, B.C. –December 3, 2012 – The pace of property sales slowed in November 2012 from October 2012 to be the second slowest month of November in the past 12 years. The slower selling pace combined with higher inventory levels continues to put downward pressures on home prices. In addition, the leading edge of a demographic change is appearing where aging home owners are selling their long-held principal residences in order to downsize in their retirement years. In certain higher priced markets, we are seeing older-aged sellers accept significant discounts on their asking price to complete their sale transactions. This is putting additional downward pressure on prices and setting the clearing price of the market lower. We foresee continued… Read more »
Ralph Cramdown
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Ralph Cramdown

@Anonymous: “I wonder if they will blink and roll back the mortgage changes?”

You and every other real estate agent and mortgage broker.

mac
Member
mac

I couldn’t take the comments anymore on Time. I had to post replies.

bullwhip29
Guest
bullwhip29

@ rp1 December 3rd, 2012 at 9:15 am

Price stability AND high leverage can’t occur at the same time (or least for any sustainable time period).

Easy credit = high leverage = inflated prices

The average person thinks today’s prices are normal and that even the slightest deviation from that should be viewed as an opportunity to buy. The credit bubble, which has been expanding for decades, has only begun to unwind itself. Perhaps one day, we will stop thinking of homes as trading/investment vehicles and simply view them as places to live. Perhaps the banks will also stop preaching to everyone that debt is good…ummm, or not.

Village Whisperer
Member
Village Whisperer

@Many Franks: Thanks for the links Many. Just as a point of clarification though, the WSJ article is countered by National Bank (which since it is replying to a US article is listed as ‘The National Bank of Canada’). This entity is not the Bank of Canada.

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